Working for Wal-Mart: An Exchange

I am writing to comment on Simon Head’s excellent article on Wal-Mart [“Inside the Leviathan,” NYR, December 16, 2004]. This is the kind of analysis of the real costs of Wal-Mart that is needed.

Mr. Head mentioned Bethany Moreton’s work on the influence of Ozark culture on Wal-Mart’s attitude toward women employees. Since I have not seen Ms. Moreton’s paper I can’t be sure she does not address this point, but I would suggest that the influence of Wal-Mart’s Ozark culture goes far beyond its treatment of women. The Ozarks of Arkansas, Missouri, and southern Illinois were settled by people from the Kentucky and Tennessee hill country (see Paul Angle’s Bloody Williamson, for example). Farming in this area is a hard life. The soil is mostly adequate but not great, unless one is fortunate enough to have bottom land. It is too far south for the really rich prairie soil that begins roughly at the latitude of St. Louis. Life was a hard combination of agrarian and hunter/gatherer.

Wal-Mart’s culture is a “macrocosm” of the brutal hill-country society now exported to the world. Early Wal-Mart management didn’t treat the Ozark farmers’ wives as they did simply because their incomes were viewed as supplemental. I would suggest that early Wal-Mart management was not that far removed from being Ozark farmers themselves. They treated the women and other employees the way they treated their own wives and others under their influence. Wal-Mart management merely continued the role of head of household. Wal-Mart is Ozark culture writ large. It reminds me of a line in Ashley Judd’s excellent first movie, Ruby in Paradise, where Ruby, having escaped her own hill-country upbringing to a new life in Panama City, remarks that she was lucky to get out before she was either beat up or knocked up. That pretty much says it all.

Pursuing this perspective of Wal-Mart may provide further insights into their exploitation. While many have commented on Wal-Mart’s destruction of small-town businesses, few have seemed to noticed that more than the loss of businesses per se this leads to a depletion of the middle class in these areas. This has the effect of “ghetto-izing” small-town mid-America much as an unforeseen and unfortunate effect of desegregation removed the middle class from black ghettos in the Sixties and Seventies. By depleting and isolating the middle class, Wal-Mart, in effect, creates in the small towns it invades a replica of itself and the hill-country society from which it came.

John Day

Foxboro, Massachusetts

formerly of southern Illinois

To the Editors:

Simon Head’s focus on Wal-Mart is limited to its role selling stuff out the front door. He tells how it’s hailed by its fans as the new capitalist wonder, while driving workers into poverty and despair and forcing large numbers of them onto the public dole.

But when you include a look at Wal-Mart’s role procuring stuff to bring in the back door, you get a better picture of its impact on our democracy. As Hedrick Smith detailed in a recent PBS Frontline special, Wal-Mart is driving manufacture of a wide range, and massive volume, of products into China. With a well-trained slave-labor workforce and using extensive currency manipulation, China is able to produce lots of stuff of competitive quality at lower prices than anywhere in the world.

So Wal-Mart’s success as a capitalist enterprise depends on Chinese dictatorship to get cut-rate prices on a large amount of its stuff—then selling it here using autocratic labor tactics more compatible with dictatorship than democracy.

Maybe Wal-Mart’s close partnership with China proves how well cowboy capitalism can work under totalitarian systems, where you can eliminate the annoying encumbrances of democracy.

Merick Chaffee

Sacramento, California

Simon Head replies:

I agree with John Day that it is not just in its treatment of women that Wal-Mart’s small-town, Ozark roots continue to influence its management culture. The depositions of witnesses in the Dukes case, alleging sex discrimination at Wal-Mart, name hundreds of Wal-Mart managers with whom the witnesses had dealings. Over 90 percent of these were male, but around 80 percent had Anglo-Saxon, Scandinavian, or German names. It was as if the great twentieth-century immigrations from eastern and southern Europe, and more recently from East Asia and Latin America, had never take place. This ethnic bias reflects Wal-Mart’s continuing belief that a managerial elite recruited mostly from the rural, small-town heartland will best uphold the corporation’s core values of discipline and obedience.

In my piece I wanted to concentrate on Wal-Mart’s treatment of its 1.2 million American employees. But I agree with Merick Chaffee that Wal-Mart’s policies toward those employed by its overseas suppliers should be closely monitored. For the past ten years the National Labor Committee, based in New York City, has been doing this and has found gross violations of local labor laws among Wal-Mart suppliers in China, Bangladesh, Central America, and in US dependencies such as American Samoa, where Wal-Mart can take advantage of cheap sweatshop labor yet still attach a “Made in America” label to imported garments.

In February 2003 Kil Soo Lee, the Korean owner of a plant in Pago Pago supplying garments to Wal-Mart, was convicted of “human trafficking” and of holding more than two hundred Vietnamese workers under “conditions of involuntary servitude.” The NLC has found that Wal-Mart suppliers in China, Bangladesh, and Central America routinely withhold employees’ wages, enforce unpaid overtime, ignore restrictions on working hours, and deny employees health care and maternity benefits.

Despite this dismal record, Wal-Mart will not agree to independent inspection of its suppliers’ plants, and refuses even to disclose their names and addresses, lest the NLC and similar groups start probing too closely. When in 2004 the NLC found that 90 percent of Bangladesh’s 3,780 garment manufacturers violated their female employees’ right to three months’ maternity leave, Liz Claiborne, Costco, the Gap, Levi Strauss, and Sears (among others) pledged that any woman in Bangladesh sewing their garments must be guaranteed her legal right to maternity leave. So far Wal-Mart has given no such pledge.

To the Editors:

There seems to be an unwritten rule that self-anointed defenders of the underdog are exempt from the normal rules of evidence. Simon Head’s article [“Inside the Leviathan,” NYR, December 26, 2004] is a case in point.

Normally you’d assume that when people are suing a firm with deep pockets, the testimony they give in pursuit of that end would be heavily discounted for bias. It has, after all, been vetted by lawyers. But for Head, every word of the “sworn depositions” given by the women suing Wal-Mart must be taken at face value. Does he really believe these women are more ethical than the rest of us? Or doesn’t he know that in America, the only consequence of getting caught in a lie is that you may not win?

Far more seriously, when Head attributes the “most telling of all criticisms of Wal-Mart” to “a February 2004 report by the Democratic Staff of the House Education and Workforce Committee,” he leaves out one telling fact. The report has one name slapped on its cover—that of Representative George Miller of California, known to have an agenda.

That would be okay if the document weren’t shoddy. The “cost to federal taxpayers” figure Head cites is based on nothing but assumptions about the pay and family status of Wal-Mart employees. We are not told how these assumptions were arrived at. Based on the numbers that are provided, there is no way to tell exactly how the bottom-line “cost to federal taxpayers” figure was calculated. How sensitive is that figure to the assumptions underlying it? The staff of Congressman Miller won’t tell us that, either.

I assume Head knows that nonpartisan studies are not written that way.

But he doesn’t seem to care. In fact, the report hedges where Head doesn’t. It reads: “The Committee…estimates that one 200-person store may result in a cost to taxpayers of…” Head’s version leaves out the “may.”

In any case, even if we believe the $2.5 billion “cost” Head calculates from the committee’s report, he should have noted a far more reliable figure on the other side of the ledger: Wal-Mart paid $4 billion in federal taxes last year.

Finally, Head’s analysis leaves a great hole. A few back-of-the-envelope calculations reveal how Wal-Mart lifts the living standards of ordinary people by offering them goods at bargain prices.

In 2004, the company’s domestic sales ran $210 billion. How much more would these items have cost if Wal-Mart were not selling them? According to a recent study (not mentioned by Head) from the National Bureau of Economic Research about the company’s influence on food prices, Wal-Mart offers “identical food items” at prices that run “15%–25% lower than traditional supermarkets.”

Assume the midpoint of that range (20 percent less) for all items sold by Wal-Mart; if the $210 billion were 80 percent of what consumers otherwise would have paid, their annual savings comes to more than $50 billion. For some perspective on that figure, after-tax income of the poorest three fifths of households runs about $1,400 billion. So $50 billion boosts their nominal income by more than 3 percent.

Now realize the potential, if only people like Head and Miller would get out of the way. Wal-Mart’s domestic market share is only 10 percent.

Gene Epstein

Economics Editor, Barron’s

New York City

Simon Head replies:

Gene Epstein’s letter deserves to be discussed along with the points raised by Wal-Mart CEO Lee Scott in his advertisement entitled “An Open Letter to the Readers of The New York Review of Books,” which appeared in the April 7 edition of The New York Review. I am naturally flattered that Scott had drawn upon his ample treasury to comment on my article while claiming that his company’s “impact” is “a key moment in time for American capitalism.”

In one important respect, however, there is much less to Scott’s letter than meets the eye. Although the first four lines of his letter refer both to “New York Review of Books readers” and to my piece (“riddled with mistakes and blinded by ideology”), there is no further mention in the letter either of New York Review readers or the piece. This is because the rest of Scott’s letter is in fact recycled material from the various paid ads that Wal-Mart took out in over a hundred newspapers earlier in the year. So if a criticism of mine happens to coincide with one which Scott answered in his previous “open letters,” such as the criticism that Wal-Mart underpays its employees, then he mentions it in his New York Review letter. But if a criticism made by me was not addressed in Scott’s previous missives, then it is not addressed in the New York Review letter either.

Scott therefore has nothing to say about the countless prosecutions and lawsuits brought against Wal-Mart both by the government and by its own employees, alleging mistreatment of employees by the corporation. Wal-Mart’s record in court is lengthy and varied. It has frequently been found guilty or has had to make substantial payments to settle cases brought against it. These have included illegal enforcement of unpaid overtime, illegal use of undocumented workers, discrimination against the disabled, and violation of employees’ rights to organize. Nor does Scott defend Wal-Mart against the charge that his employees are so badly paid that many must rely on government welfare to survive. However, these gaps in Scott’s defense are at least partially filled by Gene Epstein of Barron’s in his letter defending Wal-Mart. So I will treat Epstein as a Scott surrogate when dealing with issues that Scott himself chose to overlook in his letter.

For example, in taking Wal-Mart’s side against employees who have sued the corporation, Epstein uses the argument which Wal-Mart’s lawyers habitually use in court; he questions the reliability of employee testimony. In my article I referred only to the deposition of the 115 employees who have testified against Wal-Mart in the Dukes case, alleging discrimination against female employees by the corporation. But lengthy and detailed though they are, the Dukes case depositions are only a small fraction of employees’ recent sworn testimony against Wal-Mart. I could equally well have drawn upon depositions alleging other violations of the law and misconduct by Wal-Mart, such as its enforcement of unpaid overtime.

In all these fields judges, juries, or regulators have found consistently against Wal-Mart, which suggests that they, unlike Epstein, have not found that the testimony of Wal-Mart employees must always be “heavily discounted for bias.” Epstein seems to think that, in a case like Dukes, the plaintiff’s attorneys will seize upon any evidence, however unreliable, which might show Wal-Mart in a bad light. This is a fantasy. The attorneys bringing the Dukes case, with whom I’ve talked at length, know that any evidence they use will be subject to merciless scrutiny by Wal-Mart’s lawyers, and that if this evidence is based on hearsay and rumor, as Epstein alleges, their case will very soon fall apart. They always therefore check a witness’s testimony against the evidence of Wal-Mart’s employment records, and if the evidence is not confirmed in the records, they will not use it.

Epstein also condemns as biased and unreliable the House committee report which alleges that a typical Wal-Mart store with two hundred employees costs federal taxpayers $420,000 a year in welfare payments to impoverished Wal-Mart employees. This is important evidence in the overall case against Wal-Mart because it directly challenges Lee Scott’s claim that, modest though Wal-Mart’s national wage of “around $10 an hour” may be, Wal-Mart employees do not in fact face hardship because “only seven percent of our hourly associates are trying to support a family with children on their single Wal-Mart income.” It would be interesting to know how Scott arrived at this figure. Has he, like Henry Ford, conducted detailed investigations into the lives of his employees?

But even if we accept Scott’s 7 percent figure, it does not follow that most of that remaining 93 percent have decent incomes. Scott would no doubt like us to believe that this employee majority is composed primarily of prosperous housewives, earning a few hundred dollars a week of extra pocket money at Wal-Mart, while also relying on the solid earnings of husbands holding down well-paying, unionized jobs in, say, auto assembly plants. This too is a fantasy. In today’s service economy it is much more likely that these women will be relying on meager earnings from second, or even third jobs, or on the equally meager earnings of husbands holding Wal-Mart-type jobs in other parts of the service economy, such as wholesale or distribution.

The extent to which Wal-Mart employees must rely on government welfare programs at the federal, state, and local levels is therefore a reliable indicator of how Scott’s success in keeping down the wages and benefits of Wal-Mart employees is also driving them and their families into poverty. Epstein condemns the House report as “shoddy,” but I have talked to the staff members who wrote the report and they have in fact been conservative in estimating the burden Wal-Mart places on the federal taxpayer, and have substantially undervalued its true cost. For example, their estimate of welfare costs only includes the federal welfare programs whose criteria for eligibility and funding are uniform among the fifty states.

The House report, therefore, left out the three biggest welfare programs of all, whose eligibility criteria and funding arrangements (the division of funding responsibility between the federal government and the states) vary from state to state. So they have excluded Medicaid, Food Stamps, and “Temporary Assistance to Needy Families” (i.e., “Welfare” itself). The report also overestimates the income of full-time Wal-Mart employees by assuming that they work a forty-hour week. But for recently hired employees Wal-Mart defines “full time” as a thirty-four-hour work week; for employees hired before January 1, 2002, a full-time work week is twenty-eight hours; and for those hired before September 1, 1979, twenty hours a week is “full time” (Wal-Mart 2004 Associates Guide).

Moreover none of these “full-time” workers can be sure that, in any given week, they will actually work the designated hours. If customer demand at a Wal-Mart store falls below the levels anticipated by the corporation’s automated “expert system,” then the system will automatically reduce the total number of hours worked by the store workforce, and “full-time” employees at the store may find themselves working, not thirty-four hours, but twenty-six or twenty-seven hours, with their income falling in line with their working hours. The House report therefore overestimates the income of Wal-Mart employees, underestimates their dependence on federal welfare programs, and so does not fully convey the extent of their poverty.

Scott’s last-ditch defense of Wal-Mart’s harsh labor practices is that, however mean they be, they nonetheless benefit the wider community through Wal-Mart’s “Everyday Low Prices,” its 14 percent price advantage over its competitors. In a shameless recourse to scare tactics, Scott implies that low prices at Wal-Mart would be a thing of the past if Wal-Mart started paying its workers better. This is absurd. Productivity growth at Wal-Mart is so strong that Scott could easily afford real annual pay increases of 3–4 percent at Wal-Mart while scarcely having to raise prices at all. There are also special cost and productivity advantages to be gained from paying workers well and these would further offset any need for price increases.

Here Scott seems to have forgotten the lessons learned by Henry Ford in January 1914, when Ford decided to pay his employees the then unheard-of sum of $5 a day. Ford did this for three reasons: to bring down the very high rate of labor turnover at Ford, which was costly and highly inefficient; to encourage the Ford workforce to work harder and more efficiently on the line; and to put money in the pockets of Ford workers so that they would be able to buy the Model T. Ford’s gamble paid off on all three counts, and contributed to Ford’s spectacular success during the second decade of the last century. Generosity on payday could work similar wonders for Wal-Mart.

Wal-Mart’s annual employee turnover of 45–50 percent forces it to waste money hiring, screening, and training huge numbers of new employees, most of whom do not stay at Wal-Mart long enough to learn how to do their jobs properly and so yield any return on Wal-Mart’s original investment. These costs would tumble if employees remained longer on the job. Employees who do stay on at Wal-Mart work efficiently, as the productivity figures show. But they would surely work even more efficiently if they were properly paid and did not have to worry about how to cope if they got sick. Finally, much of the new money paid out to Wal-Mart employees on Friday would end up back in the Wal-Mart store on Saturday, as employees turn into consumers and do their shopping.

One final point. New York Review readers may recall the painted scene on the second page of the Wal-Mart ad in the April 7 issue, which purports to show Wal-Mart employees and their families, both black and white, enjoying the good suburban life. But on close inspection there’s something odd about the picture. The marks of suburbia are completely absent. There are no pickup trucks, automobiles, bicycles, strollers (for the children), and no street lights, street signs, pavements, or even, apparently, paved roads. We seem to be looking at the down-at-heel section of some small southern town where low-income Wal-Mart employees might actually live. Could it be that there is a subversive inside the Wal-Mart art department, and that he or she has tweaked the nose of the Leader?